8 mortgage tips for first-time homebuyers in UAE

You’ve always wanted to own your own home in Dubai but never thought you could? Well, now is the best time to buy in years, according to property experts. With falling house prices, plans to extend visas to ten years and an ever-growing list of new developments coming onto the market, this is the ideal time for house hunting.

Purchasing a home is going to the most important financial transaction you’ll make in your life. If you’re looking to become a homeowner, you’ll likely be considering a mortgage to help you finance the purchase.

Here’s a helpful checklist backed by the experts to make the process smooth sailing.

Understand the market

Getting to grips with the workings of the UAE real estate market is obviously going to put you on a surer footing. “The property market here is very different to other countries, so making sure you have a real estate agent you trust to guide you through the process is essential,” said Naval Vohra, CEO of Dubai brokerage Appello Real Estate. “They can guide you on fees, paperwork, and rules and regulations – this will save you time, money and reduce worry as you take the plunge with a mortgage.”

Speak to a broker

Another expert to get solid advice from is a mortgage broker as they have access to all the banks and – for a nominal fee – will give you impartial advice on the best products and compare lenders for you. Mortgage brokers will also offer exclusive promotions from banks that you wouldn’t get if you went directly.

Understand your mortgage

“For off-plan, developers offer payment plans where 100 per cent of the purchase value is either paid pre-handover or a proportion is paid pre-handover and the balance paid after completion,” explains Joanne Phillips, senior mortgage manager at consultancy Home Matters.

“For pre-handover payment plans, the mortgage availability will depend on the type of payment plan. If the payments are due while under construction, the banks will only lend up to a maximum of 50 per cent and the buyer would be required to pay the first 50 per cent.

“However, these types of payment plans are now rare as developers, in order to remain competitive, are offering payments plans where the majority of the purchase price is due on hand-over. For ready properties, banks consider lending based on the UAE lending caps – for example, 80 per cent loan-to-value for UAE nationals and 75 percent for expats.”

Experts also say it’s vital to understand all fees tied to your mortgage, particularly early settlement or transfer fees as well.

Compare rates

The best advice is to shop around as there are some interesting offers out there. For example, Standard Chartered’s MortgageOne links the current account to the home loan – the interest is calculated on the difference between the loan’s outstanding amount and the current account balance. This means buyers pay less interest as more of the monthly payment goes towards the principal amount than that of a traditional home loan. The interest savings may also be withdrawn from their account at any time.

Salary transfers

Some banks will give a slightly preferential mortgage rate if you undertake a salary transfer to them.

A salary transfer not only means your salary will be credited to the account you opened with your home loan but also means that your employer will give an undertaking to the bank that if you were to leave employment, any end-of-service gratuity would go to the bank where the salary transfer is being made.

Understand the mortgage application

Ensure when you get offers that everything is put in writing. “Don’t sign any paperwork without having read and understood it properly,” advises Keren Bobker, an independent financial advisor at Holborn Assets. “Professional advice is worth paying for as mistakes can be very costly.”

Keep liabilities to a minimum

A key factor in determining whether someone can afford a mortgage is their debt-to-burden ratio, calculated by the bank by adding all their existing liabilities, which should not exceed 50 per cent of the monthly salary, adds Bobker. Additionally, five per cent of all credit card limits is added to the tally as well because banks calculate a borrower’s affordability based on their limits and not the outstanding balance. If you have a lot of credit cards, it’s worth considering reducing them before taking out a mortgage.

Crunch the numbers

“Before you can even look at properties, you need the money for the deposit and all the associated fees,” says Bobker. “For a property priced at up to Dh5 million, expats will need a deposit of at least 25 per cent and need to allow up to another eight per cent for fees and charges. Land registry charges alone can be four per cent of the price, although this varies by emirate.”

Finally, when it comes to buying a property the real estate agent will ask for a 10 per cent deposit upon signing the memorandum of understanding (MoU), which is the contract between the seller and you. This deposit is usually held with the agent and not cashed but exchanged for a manager’s cheque on the day of transfer.

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